Hedge fund manager Einhorn is obviously a smart guy who has made good calls like his Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) short, but again, that doesn’t mean he’s right all the time. (Some might say Green Mountain’s recent share price recovery proves this.) In this case, I’d say he’s very, very wrong. Apple’s cash stash makes it a conservative investment in troubled times, and if naysayers are correct that it’s losing some momentum, then a cash cushion is even more important.
Investment lessons:
1). Many of the smartest guys in the room love financial engineering. Long-term investors don’t have to, and really, they shouldn’t. Distributing cash and levering up is often problematic for the real long term, and some activists push for this kind of behavior on a regular basis. (Granted, Einhorn is focusing on a new kind of preferred stock, not leverage, as he explained to Business Insider’s Henry Blodget in great detail.) Still, investor, beware. There’s something to be said for keeping it simple.
2). The economy remains uncertain. Cash on the balance sheet helps companies ride out difficulties. Shareholders should want their companies to have resources for R&D and smart acquisitions if times get tough. (Note that I said smart acquisitions. Many are stupid.)
3). Activism is important but needs to be thought through. Corporate governance is an important element of shareholder rights, and is far more important to long-term investing than immediate cash in hand detached from long-term thinking.
Mind the distractions
Obviously there are plenty of lessons in both of these controversial hedge fund smackdowns, but I’ve got a general one, too. Shareholders are gaining power and voice (as they should), but that’s why it’s important that we all pay attention and vote for the real long-term best interest at the companies we own.
Let’s not let the opponents of shareholder rights be proven correct: that shareholders only care about short-term profits, and that activists could skew companies toward negative results. All shareholders are responsible for weighing these situations to prevent value-destroying outcomes.
Last but not least, some shareholder activists may not be acting in our true best long-term interest. During fighty moments like these, let’s not get distracted by “sideshows” and Thunderdomes. Let’s pay attention to activism and exercise critical thinking. That’s what true shareowners do.
Check back at Fool.com for more of Alyce Lomax’s columns on environmental, social, and governance issues.
The article Investment Lessons From Hedge Fund Thunderdome originally appeared on Fool.com and is written by Alyce Lomax.
Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends Apple and Green Mountain Coffee Roasters. The Motley Fool owns shares of Apple and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, Short Jan 2014 $15 Puts on Chesapeake Energy, and Long Jan 2014 $50 Calls on Herbalife Ltd. (NYSE:HLF).
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